Canada’s financial system doing well despite global turbulence: Bank of Canada

Bank of Canada Deputy General Toni Gravelle says that amid international instability, the Canadian financial system remains stable.

The Bank of Canada says the country’s financial system has proven itself resilient despite U.S. tariffs, increased geopolitical risks and uncertainty due to artificial intelligence. The central bank’s financially stability report says “the impacts have been less widespread than was initially feared.”

The 42-page report detailed how Canadian households and businesses have remained stable and how banks have strengthened their capacity to absorb shocks. In spite of that, Senior Deputy Governor of the Bank of Canada Carolyn Rogers admits ordinary Canadians may not feel it.

“It can be true that the data looks better, and people still feel stressed,” Rogers told reporters. “The headlines feel precarious, things feel uneasy. So, even households that are coping well and able to make their debt payments, that all gives us really nice looking data. I’m sure there’s still a level of stress there.”

According to the report, Canadian households continue to carry high levels of debt relative to their income meaning those people are vulnerable if they experience a job loss or a large unexpected expense.

The ratio of household debt to disposable income, according to the Bank of Canada has risen slightly over the last year, however it does remain below the peak level seen in 2022. Rogers says Canadians have been able to save a little more money and pay down debt in recent years.

Those comments come as data from Equifax Canada shows inflation has led to the highest rate of insolvencies since 2009. According to their numbers insolvency volumes are up 18.8 per cent year-over-year. The report says it indicates “many consumers may have reached a financial inflection point.”

The Bank of Canada also warned that some mortgage holders will face higher renewal rates as pandemic-era mortgages are coming due. That group represents about 12 per cent of all outstanding mortgages in this country and on average the bank says those borrowers will see their paying increase by about 15 per cent.

While those renewals are set to happen in the next 12 months, Deputy Governor of the Bank of Canada, Tony Gravel warns that overall picture masks some important differences.

“Some households face far greater strain than others, and those with the highest debt burden have very little financial flexibility to cope with a job loss or an unexpected expense,” said Gravel.